The impact is being felt all across China. Car dealerships are bursting with unsold automobiles, warehouses are groaning under mountains of unsold goods, and millions of apartments remain vacant. In a bid to liquidate inventories, companies are engaging in vicious price-cutting wars. The latest data show that export orders are falling at their fastest pace since the 2008 crisis. Cutbacks in import orders by Chinese firms are now spreading gloom to three continents.
Germany, Europe’s export engine, sells much of its machine tools and equipment to China but is seeing a fall in GDP growth. The sovereign debt crisis, which has hit European banks, has indirectly affected China’s exports to poorer countries as well. The emerging economies of Africa and Latin America rely heavily on European banks for trade financing, but the lenders have stopped issuing letters of credit.
China’s export engine consumed about 20 percent of the world’s non-renewable energy, 23 percent of major agricultural crops, and 40 percent of base metals. Not surprisingly, the Chinese slowdown has hurt Australia, Brazil, and African countries, which have been feeding China’s export engine with raw materials like metals, agricultural commodities, and petrochemicals.
As one official of a major Brazilian iron ore company put it, with the Chinese slowdown, the “golden years” are gone. Australia’s BHP Billiton has abandoned plans to build the world’s biggest open-pit copper and uranium mine, and hopes of creating thousands of jobs have been dashed. The falloff in orders for Chinese consumer goods also transmits the pain to South Korea, Taiwan, and a host of other countries engaged in the manufacturing supply chain. For example, Japan’s export of heavy machinery has slumped, leading, in turn, to a drop in the country’s imports of commodities.